Financial services & insurancein Ukraine

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1. Banking 1.1. Participants of the banking sector in Ukraine 1.1.1. The NBU 1.1.2. Commercial banks 1.1.3. Foreign banks, their branches and banks with foreign participation 1.2. Operational requirements 1.2.1. Banking license 2. Financial institutions 2.1. Participants of �nancial sector in Ukraine Market entry conditions 2.2. Regulatory body 2.3. Operational requirements 2.2.1. Licensing 2.2.2. Regulation of activity 3. Insurance 3.1. Subjects of insurance industry 3.1.1. Ukrainian subjects 3.1.2. Foreign subjects 3.2. Operational requirements 3.2.1. Insurers registration 3.2.2. Life insurers 3.2.3. Regulation of activity 3.2.4. Licensing 4. Investment institutions 4.1. Types of investment institutions 4.1.1. Joint investment institutions 4.1.1.1. Corporate investment funds 4.1.1.2. Mutual funds 4.1.1.3. Assets management companies 4.1.2. Private pension funds 4.2. Regulatory body 5. Currency regulations 5.1. Objects of currency regulation 5.1.1. Currency valuables5.1.2. National currency 5.1.3. Foreign currency 5.1.3.1. Purchase of foreign currency5.1.3.1. Transfer of foreign currency 5.2. Licenses 5.2.1. General license 5.2.2. Individual licenses 5.2.3. Other operations subject to special requirements 5.3. Transactions with non-residents 5.3.1. Services special regulations5.3.2. Loans special regulations

Banking & �nance

The sector of Banking & Finance services is truly vital for the Ukrainian economy. Since the Orange Revolu-tion at the end of 2004 Ukraine is continuingly attract-ing the attention of foreign investors to its �nancial sector. The country’s �nancial services institutions have grown in value signi�cantly within a very short span of time and could be showing promising poten-tial in the near future. The value of foreign acquisitions since 2004 reached impressive indices, which makes the �nancial sector essential for the economy in terms of direct foreign investments. Although the interest of foreign investors to the Ukrainian banking sector has waned after the crisis of 2008, the banking sector will remain important for the Ukraine economy in any circumstances.

1. Banking

The banking sector has shown itself as one of the most promising and fastest growing sectors of the Ukrain-ian economy in the years before the crisis of 2008. A number of acquisitions of Ukrainian banks by foreign

banks took place, which has increased competition and growth of the sector. The participants of the market are acting based on international accounting standards and as Ukrainian banking legislation is in process of its assimilation with European regulations, market participants are obliged to comply with IMF banking reform program, Basel Capital Accord and other numerous international requirements.

No single bank currently has a dominant position in any banking business in Ukraine. The level of concen-tration in the Ukrainian banking industry (measured using the Her�ndahl-Hirschman index) is similar to the levels in the United Kingdom or France.

1.1. Participants of the banking sector in Ukraine

The banking sector in Ukraine is structured of two levels, varying by their subjects. The �rst level is repre-sented by Ukrainian central bank: the National Bank of Ukraine (the "NBU"), the second level is composed by commercial banks of di�erent types, forms of owner-ship and incorporation.

The banking sector in Ukraine

The NBU Commercialbanks

Nationalcentral bank

Universal (general) Specialized

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1.1.1. The NBU

Being a specialized state institution in the banking sector, the NBU is ensuring external and internal stabil-ity of the national currency of Ukraine – the Hryvnia (UAH), as its principal objective, and possesses broad regulatory and supervisory functions in the banking sector, as its key participant.

Two principal governing bodies of the NBU are the Council and the Board.

The Council, in particular, is entitled to develop the principles of Ukraine’s monetary policy and is empow-ered to veto the Board’s decisions if they contravene such principles.

The Board responds for implementing Ukraine’s mon-etary and other policies in the banking sector and generally managing the activity of the NBU.

1.1.2. Commercial banks

Ukrainian applicable legislation provides for two types of commercial banks: the "universal" (general) commercial banks and "specialized" commercial banks.

Universal banks provide a broad range of banking and �nancial services which cover numerous sectors of�nancial market and branches of Ukrainian economy.

Specialized banks limit their activity with a restricted number of operations or function in a narrow sector of �nancial market or provide services in speci�c branches of economy.

The NBU

Empowerments Functions Obligations

developing and conducting monetary policy

issuing and canceling bank-ing licenses and approving banks' statutory documents

arranging foreign exchange system

determining interest rates on overnight unsecured loans and overnight loans secured by state securities

determining interest rates on depositary certi�cates

ensuring stability of the monetary, �nancial and banking systems

providing protection of interests of depositors and creditors

implementing monetary policy

providing e�cient functioning of the banking system

sustaining prices stability

overseeing compliance with applicable legislation and imposing appropriate sanctions for relevant viola-tions

establishing rules of carry-ing out banking operations, accountancy rules, rules for protection of information, property and funds

performing regulation and supervision of banks

issuing state currency and controlling its circulation

pursuing exchange control of banks

providing for methodologi-cal support of safe-keeping, protection, use and disclo-sure of information which constitutes banking secrecy

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In 2011, commercial banks operating in Ukraine have been divided by the NBU into 4 groups according to their size of assets as of 1 October 2011. 17 major banks with total assets exceeding UAH 12.5 billion were classi�ed in the 1st group. 21 banks with total assets ranging from UAH 4.1 billion to UAH 18.9 billion were classi�ed in the 2nd group, 21 banks with total assets ranging from UAH 2.2 billion to UAH 4.7 billion were classi�ed in the 3rd group and 116 banks with total assets of less than UAH 4.3 billion were classi�ed in the 4th group.

1.1.3. Foreign banks, their branches and banks with foreign participation

The presence in Ukraine of a foreign bank may be established through a representative o�ce (without authorities to conduct banking business) and/or a Ukrainian commercial subsidiary bank.

Foreign participation in a Ukrainian commercial bank is not limited; nevertheless prior permission of the NBU is required for the establishment of a commercial bank with foreign participation, or for the "conversion" of an existing commercial bank into a bank with foreign participation. Notwithstanding that the appli-cable legislation does not limit the allowed participa-tion in the charter capital of a commercial bank to any maximum threshold, the permission of the NBU is still required for a Ukrainian or foreign legal entity, or for an individual, to directly or indirectly own, hold, or control various thresholds of a commercial bank’s charter capital or voting rights in its governing body,

i.e., 10% or more, 25% or more, 50% or more, or 75% or more. Each threshold requires a new permission of the NBU. According to NBU information, there are no plans to limit the amount of foreign capital in the Ukrainian banking sector.

1.2. Operational requirements

Banks should be established only in the form of a public joint stock company or cooperative bank. Legal entities, individuals or Cabinet of Ministers of Ukraine on behalf of the State may be bank’s shareholders.

The regulatory capital of a bank (i.e., the sum of princi-pal (core) capital and additional capital) cannot be less than the minimum set forth by the applicable Ukrain-ian legislation, which is UAH 120 million as of today.

1.2.1. Banking license

It should be emphasized that pursuant to the legisla-tion in force – a bank has a right to pursue banking activity only if it receives a banking license. The carry-ing out of banking activity without a banking license is generally prohibited and may result in criminal, civil or administrative liability of a person carrying out this type of activity without a banking license.

A banking license, which is issued by the NBU, may not be assigned to third parties and permits a bank to carry out "exclusive banking operations", �nancial and other additional services.

Universal banks Specialized banks

Provide banking, �nancial and other services, including:

soliciting deposits and other funds

placing raised funds

opening and maintaining bank accounts

issuing credits

investments

safekeeping services

securities registration services

issuance of lotteries, etc.

Savings banks

Mortgage banks

Investment banks

Settlement (clearing) banks

Development banks, etc.

COMMERCIAL BANKS

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2. Financial institutions

Financial (non-banking) services constitute a large and integral part of services market in Ukraine. The course of Ukraine for liberalization and modernization of �nancial relations favors the growth of its internal market and, as a result, has led to a rapid development of trade in �nancial services, emergence of new �nan-cial instruments and advanced �nancial institutions, which are key players in �nancial services market.

2.1. Participants of �nancial sector in Ukraine

Pursuant to applicable Ukrainian legislation, �nancial services are provided exclusively by �nancial institu-tions (or, if explicitly provided by the law, by other

entities or individuals which are not �nancial institu-tions). Any services are considered to be �nancial when such services are rendered for the bene�t of a third party (regardless of whether the burden of costs is taken by a service provider or it is allocated to a client) in order to obtain income or to preserve the actual value of �nancial assets.

The law de�nes a �nancial institution as a legal entity that provides one or several �nancial services, as well as other services associated with the provision of �nancial services, and is entered into the relevant register pursuant to the procedure prescribed by law.

Exclusive banking operations

Additional services

solicitation of funds (deposits) from legal entities and individuals

opening, maintaining, and carrying out transactions with current accounts of clients and correspondent banks

placement of attracted funds in its own name, on its own terms, and at its own risk

�nancial services through commercial agents

provision of safekeeping services (excluding securities custody)

investments

issuance of own securities

consulting and information services related to banking

organization and issuance of monetary lotteries

transportation of currency valuables and cash collection conducting registered securities

registration activities

BANKING SERVICES

FINANCIAL INSTITUTIONS

(excluding commercial banks)

credit unions

pawnbrokers

leasingcompanies insurance

companies

trusts

pensionfunds

investmentfunds

other legal entities, which exclusively pursue �nancial services activity

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Market entry conditions

A legal entity, which intends to provide �nancial services, shall conform with legislative requirements and obey procedures prescript by regulations in relevant �eld of activity.

A company shall apply for the entry into the State Register of Financial Institutions to the appropriate state body regulating relevant �nancial market services.

It should be mentioned that �nancial institutions are entitled to voluntarily conduct joint activity, uniform their operations and create associations unless this contravenes Ukrainian antimonopoly legislation and requirements of regulations governing certain �nan-cial service markets.

In such case, an association of �nancial institutions obtains the status of a legal entity from the date of its state registration.

The legal status, types, the procedure of establish-ment, the legal regime of operations and the termina-tion of activities of associations is provided by the applicable Ukrainian legislation.

2.2. Regulatory body

Financial services in Ukraine are regulated and super-vised and overseen by the National Commission on the Regulation of the Financial Services Markets

(the "Financial Services Commission"), which is responsible for �nancial (non-banking) institutions and other companies engaged in �nancial services, except for commercial banks, which are subject to supervision by the National Bank of Ukraine, and secu-rities traders/brokers and asset management compa-nies, which are under the ambit of the National Com-mission on Securities and Stock Market.

The Financial Services Commission is the specialized state agency responsible for the regulation and control of (non-bank) �nancial institutions in Ukraine. It is authorized to issue licenses to �nancial institutions and other companies engaged in �nancial services, and therefore – to grant, refuse, restrict or revoke a company’s authorization to the market, as well as to adopt speci�c regulations. The Financial Services Com-mission is authorized to hold on-site inspections and documentary examinations of �nancial institutions. It may also appoint an additional annual audit of the �nancial statements of a company, which are to be conducted by an auditor appointed by the Financial Services Commission at the cost of the company.

The Financial Services Commission is also authorized, inter alia, to perform following actions.

Perform stateregistration

Apply for the entry into the State register

of �nancial institutions within 30 calendar

days after stateregistration

Bring its accounting and

registering system in compliance

with law

Con�rm professional

qualities and business reputation of the sta�

Bring its internal policies

system in compliancewith relevantregulations

A legalentityshall

Financial ServicesCommission

imposes administrative sanctions

initiates criminal or anti-trust proceedings

brings an action in a civil or a commercial court regarding regulatory breaches

issues mandatory warning to a �nancial institution or a self-regulated organi-zation regarding rectifying of breaches of applicable law

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2.3. Operational requirements

A �nancial institution may be established in any organizational and legal form, unless otherwise provided in regulations governing certain �nancial services.

Depending on the type of a �nancial institution, the requirements to the minimal amount of its charter capital will vary pursuant to legislative prescriptions. For example, the minimum amount of the charter capital set for pawnbrokers is UAH 200,000.

According to the applicable Ukrainian legislation, the status of a �nancial institution may be obtained by a legal entity after it has been registered in the State Register of Financial Institutions.

2.2.1. Licensing

In the �nancial sector certain types of professional activity may only be carried out by the Financial Institution provided that it obtained a respective license from the Financial Services Commission.

A foreign legal entity would have to either set up a new company and obtain an appropriate license for it or buy an existing licensed entity. In both cases it would have to comply with the legislation applicable to foreign investments and competition.

Application for an authorization to conduct licensable activities in Ukraine must be made to the Financial Services Commission.

Pursuant to the applicable Ukrainian legislation, the Financial Services Commission issues licenses within its competence to �nancial institutions for:

insurance activity;

administering of private pension funds;

issuing of �nancial credits using solicited deposits;

rendering of any �nancial services, provider of which intends to directly or indirectly solicit �nancial assets from natural persons.

The Financial Services Commission shall make a decision to whether issue or deny a license within 30 calendar days of the date of receipt of the application for a license with supporting documents.In case of refusal pursuant to the applicant's failure to meet certain licensing conditions, the company may submit a new application for license upon the removal of nonconformity which led to the license denial.

2.2.2. Regulation of activity

Financial Institutions

are obliged to provide customers with information on their operations, services,

prices, indices and other information prescript by

applicable legislation

must disclose information provided by Ukrainian laws to authorized state bodies

are prohibited from disseminating (of any form)

of advertising and other information, which contains

false information about their operations in

�nancial services

must keep record of operations and provide

reports pursuant to requirements of laws and

speci�c regulations

shall operate in line with the requirements

of legislation on economic competition protection and

on protection from unfair competition

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3. Insurance

The insurance industry as an individual industry of �nancial services is also showing a rapid growth, espe-cially since third-party motor liability insurance became obligatory in Ukraine. This change came about because of the government’s ambitious plan to make Ukrainian legislation compliant with that of the European Union. The �nancial crisis of 2008 has a�ected the insurance services market to a signi�cant extent but the prospects of the market remain positive in the long-term.

3.1. Subjects of insurance industry

Insurance services, as a type of relationships designed to protect property interests of individuals and legal entities in case of occurrence of speci�c events (insured accidents), may be provided only by a �nan

cial institution provided it obtained a license to render insurance services.

The words "insurer", "insurance company" and "insur-ance organization" in the name of a company may be used only by legal entities possessing an insurance license.

The specialized state agency responsible for the regu-lation and control of the insurance business in Ukraine is the Financial Services Commission, with its powers de�ned in section 2.2. of the present Brochure.

3.1.1. Ukrainian subjects

To obtain the status of an "insurer", a company shall meet speci�c requirements provided by applicable legislation.

Besides insurers, the market is also represented with insurance intermediaries, who perform intermediary activity in insurance and reinsurance sectors as their sole and exceptional activity.

individuals or legal entities representing, acting on behalf of, and under the authorization of an insurer

carry out a portion of the insurance company’s activities (insurance contracts conclusion, obtaining insurance premiums, performing functions in connec-tion with insurance payments and reimbursements, etc.);

receive fees from insurer under agency agreements

legal entities or individuals acting in own behalf but in the interests of a person requiring insurance

legal entities acting in own behalf on the basis of a brokerage agreement with an insurer requiring reinsurance

act pursuant to brokerage agreement with an insured;

the sale of the insurance products of one insurer must not constitute more than 35% of a broker’s activity (must sell the insurance products of at least 3 insurers);

receive fees from insured under brokerage agreements

Joint-stock companies

General partnerships

Limited partnerships

Additional liability companies

INSURERS

INSURANCE INTERMEDIARIES

Agents Insurance brokers Reinsurance brokers

may be a single company

Brokerage activities are very narrowly de�ned in Ukraine and do not include the provision of any services on behalf of and/or in favor of an insurer.

Pursuant to the abovementioned, a broker must have a brokerage agree-ment with an insured rather than with an insurer and it is suggested that a broker may not enter into an agreement with an insurer.

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may be established exceptionally as:

As for non-resident insurance and reinsurance brokers in Ukraine, they may provide their services related to concluding insurance agreements with non-resident insurance companies either independently or through their permanent representative o�ces in Ukraine.

A non-resident insurance or reinsurance broker which provides its services without such o�ce shall notify in writing the Financial Services Commission about its intention to conduct business in Ukraine, and the latter will then publish such information on its o�cial web-site and printed mass media.

3.2. Operational requirements

An insurance company shall be established just for insurance services provision since its very inception. Enterprises, institutions and organizations may not become insurers by amending and/or updating their statutory documents if they have been previously engaged in another type of activity, even if such amendments or updates would comply with legisla-tive requirements.

3.1.2. Foreign subjects

Ukrainian applicable legislation provides that foreign insurers are not allowed to conduct direct insurance activity in the Ukrainian market except for certain exclusions and upon condition that certain requirements are met.

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2

3

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Services Allowed to Foreign Insurers in Ukraine Statutory Requirements

insurance of risks related to overseas transport-ing, commercial aviation, launching of space-ships and freight (including freight of satellites), transit insurance contracts providing coverage against risks relating to cargo in transit and/or transport by which the cargo is transferred, and/or any liability arisen as a result of such cargo transportation

reinsurance

intermediary services in the form of agency or brokerage operations for reinsurance of risks explicitly mentioned in p. 1 above

auxiliary insurance services such as, for example, consulting, actuarial risks assessment and satisfaction of claims

the country where the foreign insurer is registered is a member of the World Trade Organization (the WTO) and such country participates in the international coopera-tion aimed at prevention of and the counteraction to the legalization of money laundering and �nancing of terror-ism and cooperates with the Financial Action Task Force (FATF). For the purposes of conducting reinsurance activity on the territory of Ukraine the requirement regarding the membership in the WTO by the country where the foreign insurer is registered is not applicable;

presence of a memorandum (agreement) on exchange of information signed between Financial Services Commis-sion and relevant authority of the country where the foreign insurer is registered;

the country of the foreign insurer’s registration exercises state control over the insurance business;

presence of a treaty on avoidance of double taxation agreement signed between Ukraine and the country where the foreign insurer is registered;

the country where the foreign insurer is registered is not included by Ukraine to the list of tax heaven jurisdictions;

the foreign insurer has obtained the insurance license in the country of its registration;

the foreign insurer’s �nancial reliability rating meets the requirements established by the Financial Services Commission

I

II

III

IV

V

VI

VII

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3.2.1. Insurers registration

A Ukrainian legal entity must undergo certain registration procedures in order to be quali�ed to carry out insur-ance activity.

Moreover, an insurer must be established by, and must exist with, at least 3 shareholders (participants), which may be Ukrainian and foreign legal entities and individuals.

The charter capital (fund) of an insurer must be paid in cash, with the exception that 25 per cent may be paid by state securities at par value. The statutory minimum for the charter capital of an insurer must be equal to the UAH equivalent of EUR1,000,000.00. The total

amount paid by an insurance company to the charter capital of any other Ukrainian insurer must not exceed 30% of its own charter capital (fund), and 10% of the charter capital per a particular insurer.

In order to obtain the status of �nancial institution a company must apply for registration with the State Register of Financial Institutions and comply with subsection 2.1.1. of this Brochure and with some additional prescript legislation requirements.

3.2.2. Life insurers

Life insurers are prohibited from providing any other types of insurance, except for:

1) re-insurance of life insurance;

2) �nancial activities connected with the accumula-tion, investment, and management of insurance reserves (asset management);

3) crediting the insured individuals; and

4) the performance of any operations aimed at satisfy-ing its own business needs.

The statutory minimum for the charter capital, paid in cash with speci�cs provided in subsection 3.2.1. here-inabove, of a life insurer must be equal to the UAH equivalent of EUR1,500,000.00.

REGISTRATION OF AN INSURER

REQUIREMENTS FOR FINANCIAL INSTITUTION STATUS

State registration as a legal entity (subsidiary) and

post-registration formalities

Receipt of an insurance license, either for life insurance

services or general (non-life) insurance services

Registration with the State Register of Financial Institutions,

which con�rms its status of a �nancial institution

the paid-in charter capital must be equal to or exceed the UAH equivalent of EUR

1,000,000 (calculated pursuant to the exchange

rate of the NBU on the date of its application)

the company must have the required number of

quali�ed insurance profes-sionals, o�ce premises, and software, hardware,

and communication facilities installed therein

the company must present a business plan of its

insurance activity for not less than three years

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It should be emphasized, that when the cost of insur-ing a single object exceeds 10% of the sum of paid charter capital and formed free reserves and insurance reserves, the insurer is obliged to conclude a reinsur-ance agreement, which is subject to the registration pursuant to the procedure established by the Financial Services Commission.

Insurance premiums may only be paid in UAH. Upon agreement of the parties the �nancial obligations of the life insurance agreement may be determined in a foreign currency. Insurance bene�ts are to be paid in the currency stated in the insurance agreement, provided that it does not contradict the applicable law.

3.2.4. Licensing

The licenses for insurance activity are issued by the Financial Services Commission. In addition to the requirements discussed in subsection 2.1.1. and here-inabove, in order to obtain and maintain an insurance license a �nancial institution must comply with speci�c requirements provided by the applicable legislation.

The insurer which provides services di�erent from life insurance and contributes to the charter capital of the insurer who provides life insurance services may not obey to the requirements regarding the total amount paid by an insurance company to the charter capital of any other Ukrainian insurer (which must not exceed 30% of its own charter capital (fund), and 10% of the charter capital per a particular insurer).

The requirements for �nancial institution status, set in subsection 3.2.1. hereinabove, apply in the same manner for life insurers with regard that the paid-in charter capital of a company intending to provide life insurance must be equal to or exceed the UAH equiva-lent of EUR1,500,000.

3.2.3. Regulation of activity

In addition to regulations provided in subsection 2.2.2 of this Brochure, insurers are also obliged to:

- submit quarterly and annual reports to the Financial Services Commission;

- prepare and publish their annual �nancial state-ments and consolidated reports (the accuracy of these reports must be con�rmed by an independent auditor).

The general manager and chief accountant of a company must have

- advanced professional skills and a good business reputation;

- a university (or equivalent) degree in law or economics and have at least 5 years relevant work experience;

- the Chief Accountant must hold a university degree in economics and have at least 3 years relevant work experience;

- both of them must (a) complete the appropriate professional skills enhancement courses organ-ized by the Financial Services Commission; (b) not have been the senior manager or chief accountant of a �nancial institution declared bankrupt or subjected to compulsory liquidation over the previous last 5 years; and (c) not have any standing or unsuspended conviction for a deliberate crime, including crimes in commercial or administrative spheres.

The actuary of a company must have

- a university degree;

- at least three years actuarial work experience;

- a special quali�cation certi�cate issued by the Regulator;

- a document proving successful completion of the professional exams according to the Ameri-can or British examinations systems

The company must adopt and register its insurance conditions

(containing a description of all of its insurance products)

and any amendments thereto with Financial Services Commission

LICENSEPROVISIONS

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4. Investment institutions

Ukrainian legislation recognizes investment institu-tions as participants of Ukraine’s capital market. Although the Ukrainian capital market is currently much smaller than the banking industry in Ukraine, it increasingly attracts foreign interest. Since Ukraine took the course for liberalization of its investment legislation, the role of investment institutions has signi�cantly increased. Investment institutions have shown themselves as a promising alternative for investing in �nancial markets.

4.1. Types of investment institutions

Investment institutions are institutional investors that perform operations with �nancial assets in the inter-ests of third parties on their own account or on account of such parties or on account of funds borrowed from other �nancial assets, in order to secure pro�t or preserve the real value of �nancial assets.

4.1.1. Joint investment institutions

Joint Investment Institutions (the "JII") are investment institutions which may exist as a legal entity: the Corpo-rate Investment Fund (the "CIF"), or as an amount of assets belonging to investors: Mutual Funds (the "MF").

The applicable legislation provides several types of Joint Investment Institutions, depending on their speci�ca-tions.

TYPES

FORMS

JOINT INVESTMENT INSTITUTIONS

Private

Public

Interval

Fixed Term

Termless

Diversi�ed

Non-diversi�ed

The JII (or his assets management company) may not redeem the securities issued by such JII (or his assets management company) until its termination.May be only established for a �xed term.

The JII (or his assets management company) shall redeem the securities issued by such JII (or his assets management company) any time at the request of investors. May be only of diversi�ed form.

The JII (or his assets management company), at the request of investors, may redeem the securi-ties issued by such JII (or his assets management company) during certain period of time, a speci�ed in the prospectus (interval). An interval shall be at least once a year, but at most once a quarter, and last at least 10 working days during a year and at least 1 working day for each interval.May be only of diversi�ed form.

A JII terminates after a certain term provided in its statute expires.

May be established for a termless period.

- the number of securities of 1 issuer in the assets of a JII shall not exceed 10 % of the total amount of relevant securities issue;- the total value of securities which are assets of a JII in amount exceeding 5 % of their total emission volume, at the time of their purchase shall not exceed 40 % of net JII assets;- at least 80 % of the a JII’s total asset value shall be cash, savings certi�cates, corporate bonds and local bonds, government securities and securities traded on stock exchange.

Other JII, which are not considered as diversi�ed.A non-diversi�ed JII, which carries out exclusively private placement of securities of JII among legal entities and individuals, is a venture fund. An individual can participate in a venture fund exclusively provided the acquisition of such fund’s securities in an amount not less than 1500 minimum wage*.

Investment institutions

Private pension funds

Joint investmentinstitutions

Mutual funds

Corporate investment funds

* as of 01.02.2012 a minimum wage is set in the amount of UAH 1073,00.

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in the State Register of JII is the National Commission on Securities and Stock Market (the "Securities Com-mission").

4.1.1.1. Corporate investment funds

Ukrainian applicable legislation provides the following aspects of inception and activity of a CIF.

The JII are forbidden to change their form and type.

Securities of public and interval JIIs dividends are not subject to calculation and payment of dividends.

In order to perform its activity, a JII must be registered in the State Register of JII. The State body which performs registration and issues certi�cates of registry

The minimum amount of mutual fund assets can not be less than the minimal amount of the initial charter fund of CIF (UAH 1,341,250 – as of 1 February 2012).

In order to create a mutual fund, an asset manage-ment company shall undergo the following steps.

A mutual fund is deemed as created since the date of its registration in the State Register of JII.

4.1.1.2. Mutual funds

Mutual funds are not legal entities, but are assets belonging to investors on common partial ownership, which are managed by an asset management company.

May be established exceptionally as a public JSC

Assets are managed by an assets management company

May not be estab-lished by legal entities whose carter capitals belong to state bodies by 25 % or more

The minimal amount of the initial charter fund is UAH 1,341,250 (as of 1 February 2012)

CIF

May not:

- issue and place securities other than shares;

- involve loans or loan of more than 10 percent of its assets;

- assets to bail in the interests of third parties;

- place the shares at a price below par value;

- place the shares at a price below net asset value of the corporate investment fund per share;

- place over the announced number of shares;

- refuse to buy shares on the grounds not speci�ed in this Act or the regulations of the Commission;

- create any special or reserve funds.

Develop and adopt MF

statute

Submit to the Securities Commission

the documents necessary for registration of MF statute

for registration of the fund in the State

Register of JII;

Conclude contracts with auditor

(audit �rm), custodian, registrar or depositary,

property valuator

Develop and approve a

prospectus of MF certi�cates

Organize public or private

placement of MF certi�cates

Submit to the Securities Commission

the documents necessary for registra-tion of a prospectus of

MF certi�cates

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properly rewarded as well as is fully liable for his activity.

4.1.2. Private pension funds

Non-state (or "private") pension funds (the "PF") are established by the decision of their founders and act without intention to secure pro�t for its subsequent distribution among founders. Pension fund assets (pension assets) are contributions to the pension fund (pension contributions) and other �nancial receipts.

Non-state pension provision shall be the sole activity of pension funds. Any other activity not provided by the applicable legislation is prohibited.

4.1.1.3. Assets management companies

An asset management company (the "AMC") is a joint-stock or a limited liability company which manages the assets of a JII.An AMC may simultaneously manage the assets of several JII but may not perform any other activity than assets management.

Charter capital of an asset management company shall not be less than UAH 7,000,000, with regard that the State may not own a share which exceeds 10 per cent of AMC charter fund.

The activity of AMC shall be conducted under a license issued by Securities Commission. AMC is

Professional pension funds

Corporate pension funds

Open pension funds

Act on the basis of a charter

The sole regulatory body is the board

Individuals connected by their professional activities de�ned in a fund’s charter, as well as individuals who work for employers and their associa-tions, members or employees of trade unions, their associations, which have created such fund, may be participants in such funds

May be established by associations of legal entities – employers, individuals, including trade unions (associations of trade unions), or individuals associ-ated with their professional activities

Pension fund acquires legal status and rights to conduct activities in non-state pension provision since its registration by Financial Services Commission, and the issuing of relevant certi�cate

The assets of pension funds are managed by assets management company on same conditions as provided in subsection 4.1.1.3 herein

Any individuals regardless of location and nature of their professional occupation may become its participants

May be established by one or several legal entities

Individuals who are (were) in professional relations with fund’s founders-employers or employers-payers may be participants in such funds

May be established by one or several legal entities-employers joined by employers-payers

PENSION FUNDS

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as well as registration, licensing and enforcement powers.

It is the Securities Commission who registers joint investment institutions and issues relevant certi�-cates. In addition to its role of authorizing and supervising the activities of regulated securities market participants, also performs a number of other important functions and tasks.

Moreover, the Securities Commission adopted a Code of Principles of Corporate Governance. The aim of the Code is to bring about changes in corporate govern-ance practice of Ukrainian corporate entities taking into account modern international standards and the characteristics of the national market. This Code has non-binding voluntary nature.

4.2. Regulatory body

Besides the Financial Services Commission, another principal regulatory body in Ukraine, which was set up to regulate the �nancial services industry is the Securities Commission, mainly responsible for investment institutions.

The Securities Commission is the state agency authorized to determine and implement a uniform state policy in the securities market in Ukraine, and to monitor compliance of Ukrainian and foreign entities and individuals with the legal requirements govern-ing securities and the securities market. The Securities Commission has been granted broad powers with respect to the formation of the overall legislative framework for the operation and development of Ukraine’s securities, investment and capital markets,

5.1. Objects of currency regulation

5.1.1. Currency valuables

Currency valuables, as objects of currency regulation in Ukraine, are also objects of �nancial transactions and of �nancial market in general.

5. Currency regulations

The decision of Ukraine on integration to the EU has since then left a positive imprint on the regime for currency transactions in Ukraine, rede�ned general principles of currency regulation, the powers of state bodies and functions of banks and other �nancial institutions in Ukraine in the regulation of foreign exchange transactions, rights and obligations of foreign investors and other subjects of the market and broaden the possibilities to bene�t from opera-tions with currency valuables.

Ukrainian Currency (UAH)

Bank Metals

Payment Docu-ments and other

Securities denomi-nated in UAH Foreign

Currency

Payment Docu-ments and other

Securities denomi-nated in foreign

currency

CURRENCY VALUABLES

Shares, bonds, debentures and warrants, bills (bills of exchange), promissory notes, letters of credit, checks, bank orders, certi�cates of deposit, savings books and other banking and �nancial instruments

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5.1.3.1. Purchase of foreign currency

Ukrainian residents (legal entities or individuals) may acquire non-cash foreign currency in Ukraine only through a duly licensed Ukrainian commercial bank (or non-bank �nancial institution) possessing general license from the NBU.The applicable Ukrainian legislation provides a limited number of cases for such purchase and a list of various documents that shall be submitted to such bank (or non-bank �nancial institution) in order to con�rm the legitimacy of the purchase. Instances in which such a purchase will be permitted include, inter alia, the need for such resident to discharge its payment obligation to a non-resident in connection with:

purchase of goods or services from such non-resident;

repayment of a loan extended by such non-resident and/or the payment of interest thereon; and

payment of dividends or other income earned as a result of such non-resident’s investment.

5.1.3.1. Transfer of foreign currency

Any transfer of foreign currency from Ukraine abroad requires an individual license of the NBU, with an exhaustive list of exemptions.

5.1.2. National currency

Hryvnia (UAH), the Ukrainian national currency, is the only lawful means of payment on the territory of Ukraine, and that it is acceptable without any limita-tions in the settlement of any obligations.

Amounts in UAH, which have been legally exported, transferred, forwarded abroad, may be freely exported, forwarded, transferred back to Ukraine.

5.1.3. Foreign currency

The applicable Ukrainian legislation provides a general rule that any use of foreign currency on the territory of Ukraine, as means of payment or as an object of pledge, may legally be carried out only pursuant to a permit of the NBU issued on a case-by-case basis (the "individual license").The abovementioned rule does not apply to foreign currency transfers performed within Ukraine by a Ukrainian commercial bank or �nancial institution possessing a general license of the NBU for the carry-ing out of currency transactions.Trade in foreign currency on the territory of Ukraine may be carried out only by or through Ukrainian commercial banks and licensed �nancial institutions, and only on the inter-bank currency market of Ukraine.

Transfer of foreign currency abroad by a

Ukrainian resident individual within the limit determined by

the NBU

Transfer of foreign currency abroad by a Ukrain-ian resident or non-resident

individual, within the limit of the amount previously

imported into Ukraine by such resident or non-resident

on a legal basis

Repatriation from Ukraine abroad of the

amount of a foreign investment in foreign

currency previously made in Ukraine upon the termination of the

relevant investment activity

Payment in foreign currency abroad to the European Organization

for the Safety of Air Navigation as a fee for the services on aircraft

navigationPayment of interest

under a loan or income earned (e.g., dividends)

from a foreign invest-ment in foreign

currency abroad

EXEMPTIONS

Payment in foreign currency abroad by a Ukrainian resident (legal entity or individual) in discharge of a contractual obligation in such foreign currency to a non-resident in settlement for goods, services, works, intellectual property rights, or other property rights acquired or received by such resident from such non-resident (N.B.: an acquisition of securities or other currency valuables does not fall within this exemption)

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5.2. Licenses

The NBU issues "general" and "individual" licenses which allow subjects of currency regulation to perform certain operations with currency valuables.

A list of certain documents, required for the provision of each type of licenses is set forth by the applicable Ukrainian legislation.

5.2.1. General license

5.2.2. Individual licenses

Individual licenses are issued to residents and non-residents for the performance of a single currency transac-tion for the period required for such transactions.

The obtainment of an individual license by one party of the currency transaction also permits the other party or a related third party to e�ectuate such transaction unless otherwise provided by conditions of individual licenses.

INDIVIDUAL LICENSE

Repatriation and transfer of funds in UAH to Ukraine, if in excess of the amounts

in UAH which have been transferred abroad on legal

grounds

Is issued to banks and non-banking

�nancial institutions

Is valid through all the period of

currency regulation

Allows performing a broad range of operations with

currency valuables, which do not

require individual licenses

Allows establishing currency exchange

o�ces on the territory of Ukraine

Depositing funds in foreign currency and other currency valuables in an account or on deposit

outside Ukraine (except, inter alia, the opening by a duly licensed

Ukrainian commercial bank of a correspondent account with a

foreign bank, and the opening by a Ukrainian resident individual of a bank account with a foreign bank

for the duration of such individual’s stay abroad)

Investing abroad, including transferring foreign

currency abroad in connec-tion with acquisition of

assets and securities

GENERAL LICENSE

is required, inter alia, for

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Center has refused to issue the Price Evaluation Act. The NBU approval cannot be issued if a Price Evalua-tion Act has been obtained in respect of the payment and indicates that the amount of such payment exceeds the applicable "fair market price".

The mentioned requirements do not apply to, inter alia, �nancial, transport and communications services rendered by a non-resident service provider, as long as the resident-recipient possesses a license allowing it to engage in the relevant business activity, and the payments made under the loan registration certi�-cates and individual licenses issued by the NBU.

5.3.2. Loans special regulations

The NBU sets a maximum permitted rate of interest (the "Maximum Interest Rate") for loans extended by foreign lenders to Ukrainian borrowers, and may refuse the registration of a loan agreement which provides for an interest rate exceeding the Maximum Interest Rate.

The Maximum Interest Rate applicable to loans in freely convertible currencies is as follows:

(a) for �xed interest rate loans:

with maturity of up to 1 year – 9.8% p.a.;

with maturity from 1 to 3 years – 10% p.a.;

with maturity over 3 years – 11% p.a.;

(b) for �oating rate loans – LIBOR for three-month USD deposits plus 750 basic points.

5.2.3. Other operations subject to special require-ments

Receipt of a foreign currency loan by a Ukrainian resident (including a Ukrainian commercial bank) from a non-resident is subject to the registration of such loan with the NBU.

Finally, under applicable legislation Ukrainian residents (legal entities and individuals) are required, upon opening a foreign bank account, to notify the NBU regarding such an account within 3 days from the date on which such account is opened. This require-ment does not extend to the opening of correspond-ent accounts by Ukrainian banks, opening of a foreign bank account by a Ukrainian resident individual for the duration of its stay abroad and by the entities which enjoy diplomatic immunity and privileges.

5.3. Transactions with non-residents

Foreign currency and Hryvnia are used as means of payment in the settlements between residents and non-residents for business deals. Such settlements are made only through authorized banks in the order established by the NBU.

5.3.1. Services special regulations

Ukrainian applicable legislation provides a regulation of the remittance of funds in national and foreign currency to non-residents, which is aimed at restrict-ing the remittance of funds from Ukraine as, inter alia, payment for works and/or services provided by non-residents on "commercially unreasonable" terms and at making such a remittance of funds more transpar-ent.

If the aggregate amount of such service payments as speci�ed hereinabove would exceed, in respect of each respective agreement or each foreign payee, EUR 100,000 (or its equivalent), the payer would be required to obtain, prior to the making of any such payment, either:

an act of price evaluation (the "Price Evaluation Act") issued by the State Information and Analytical Center for the Monitoring of the External Commodities Markets (the "External Markets Monitoring Center"), con�rming that such payment does not exceed the "fair market price" for such works or services, or

an individual approval of the NBU for the making of such payment, if the External Markets Monitoring

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All of the information included in this document is for informational purpose only, and may not re�ect the most current legal developments, judgments, or settlements. This information is not o�ered as legal or any other advice on any particular matter. The Firm and the contributing authors expressly disclaim all liability to any person in respect of anything, and in respect of the consequences of anything, done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents of this brochure. No client or other reader should act or refrain from acting on the basis of any matter contained in this document without �rst seeking the appropriate legal or other professional advice or the particular facts and circumstances.